The rewards of de-Ubering your portfolio

David Bonderman, who swiftly apologized to employees and fellow board member Arianna Huffington as he publicly resigned from Uber’s board, had uncanny timing.

With a sexist comment, he had interrupted Huffington’s point about women on boards, illustrating Uber’s real, aggressive cultural problems at the very moment she was addressing them.

At a company-wide meeting on Tuesday, Huffington was trying to make a serious point about increasing the number of women on boards, noting that those with one female director are more likely to appoint a second one. Bonderman interrupted her with: “Actually what it shows is that it’s much more likely to be more talking.”

What’s sad about Bonderman’s comment is that his resignation from Uber was probably a result of context. It came as the ride-hailing startup grapples with a CEO on indefinite leave, a push for a culture overhaul and deeper scrutiny from big investors, including Goldman Sachs and Fidelity Investments. What if Bonderman made the quip a year earlier? Employees at Uber were so used to certain behaviours that they might have let it slide.

Uber has fast become the latest example of an easy way to select better-performing companies. Looking for companies with women in senior roles — what you might call de-Ubering your porfolio — directly impacts performance.

“They obviously would have been better to look at themselves in the mirror a long time ago, as they were building the company. Now, it’s sort of become a crisis,” says Richard Nesbitt, former chief executive of the Toronto Stock Exchange and co-author, with gender intelligence expert Barbara Annis, of a new book called Results at the Top: Using Gender Intelligence to Create Breakthrough Growth.

“Uber isn’t unique,” he adds. “It’s endemic out there.”

Nesbitt says the simplest way portfolio managers can use gender intelligence to their advantage is to review companies’ most transparent disclosure on gender: the makeup of the board.

Nesbitt and Annis reviewed about 60 studies internationally and found organizations that increase their female board members from zero to one see a multiple percentage-point increase in financial performance over time.

“This has been shown to dramatically improve the performance of companies,” Nesbitt says. “As you increasingly add women as a percentage of total board members, you’ll see continued improvement.”

Portfolio managers can also review management for female representation, though the disclosures are not as easy to find as the board makeup.

Nesbitt points to Credit Suisse’s bi-annual CS Gender 3000 report, which shows companies with more than 50% women in top management positions provided a compound annual growth rate of 10.3% between 2013 and 2016. Companies with 25% senior women had a 2.8% growth rate, and for companies with 33% women in senior management, growth was 4.7%.

While the correlation is obvious, experts aren’t completely sure about how it works. One explanation is that women challenge men with different approaches and ways of thinking, thereby raising expectations and standards.

Easy returns, right? Simply buy companies that have more women in senior positions. Except that in Canada, 45% of companies on the TSX have no female directors.

“In practice it’s very hard,” Nesbitt says. “Only 4% of CEOs in the S&P 500 are women. Only 20% of board members are women today. Many companies don’t have any women at all.”

That makes advocating for more women in management and on boards a no-brainer. Nesbitt also encourages advisors and portfolio managers to urge more gender diversity among managers and board members within their own organizations.

And, for men, especially those in management positions, check your biases and assumptions.

Otherwise, Nesbitt says, “you’ll end up with a lot of men running the company, and you’ll end up with a lot of men with certain attitudes which are archaic attitudes. You end up with problems and poor performance.”